India to issue digital rupee; gains from digital assets to be taxed at 30%

The Reserve Bank of India will issue a new digital rupee powered by blockchain technology starting fiscal 2022-23, Finance Minister Nirmala Sitharaman said during the Union Budget 2022 on Tuesday.

Blockchain technology also powers cryptocurrency, non-fungible tokens (NFTs) and it is a distributed ledger, updated in real-time. In a blockchain, the transaction records cannot be changed at all and the ledger is transparent and authentic, which is why it is used in cryptocurrency as well.

Meanwhile, the government has also announced that any income from transfer of digital assets will be taxed at 30 per cent rate, The Indian Express reports.

This will impact gains from cryptocurrency and NFTs as well, which have seen a boom in India in recent times. “No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from transfer of virtual digital asset cannot be set off against any other income,” Sitharaman said.

In order to capture the transaction details, the government has also provided for TDS on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration above a monetary threshold. Gifting of virtual digital asset is also proposed to be taxed in the hands of the recipient.

“Digital currency will also lead to a more efficient and cheaper currency management system. It is therefore proposed to introduce digital rupee using blockchain and other technology to be issued by the Reserve Bank of India starting, 2022 and 2023,” Sitharaman said in parliament.

The central bank digital currency (CBDC) is a digital form of fiat currency which can be transacted using wallets backed by blockchain and is regulated by the central bank. CBDC is different from decentralised virtual currencies and crypto assets, which are not issued by the state and lack the ‘legal tender’ status. It enables the user to conduct both domestic and cross border transactions which do not require a third party or a bank.

The move comes amid the government’s plans to introduce a bill on cryptocurrencies that seeks to prohibit “all private cryptocurrencies in India” with “certain exceptions”.

India will not be the only country to launch a digital currency. In October 2021, Nigeria launched eNaira, which is a non-interest-yielding CBDC. Bahamas and five other islands in the East Caribbean have also introduced CBDCs.